Kế toán, kiểm toán - Statement of cash flows

Statement of Cash FlowsPurpose of Statement of Cash FlowsProvide information about cash receipts and payments during an accounting periodHelps us see how financial position changes during an accounting periodOnly statement that collects and shows in one statement the causes of changes in cash during a financial reporting periodCash and Cash EquivalentsCash includes currency on hand and demand depositsCash equivalents are short-term, highly liquid investments that areCash and Cash EquivalentsCash includes currency on hand and demand depositsCash equivalents are short-term, highly liquid investments that areReadily convertible to known amounts of cashCash and Cash EquivalentsCash includes currency on hand and demand depositsCash equivalents are short-term, highly liquid investments that areReadily convertible to known amounts of cashSo near maturity that they are not likely to change in value due to changes in interest ratesClassification of Cash Receipts and Cash PaymentsOperating activitiesInvesting activitiesFinancing activitiesOperating ActivitiesTransactions that generally involve producing and delivering goods and providing servicesInflowsselling goods and services, interest and dividend revenueOutflowsinventory, salary exp, interest expInvesting ActivitiesBuying and selling plant assets and securities, and making loans and collecting on themInflowssale of plant assets and investment securities, collecting loansOutflowspurchasing plant assets, investment securitiesFinancing ActivitiesObtaining resources from owners and providing return, and obtaining resources from creditors and repaying principalInflowsissuing stock, bonds, other short and long-term borrowingOutflowspurchasing treasury stock, repaying principal, cash dividendsOther Cash Flow ConsiderationsGenerally, information on gross receipts and payments more relevantWhen issuing long-term debt to retire other debt, show both Noncash investing and financingAcquiring plant assets by issuing notes payableConverting bonds payable into common stockBasic Interpretation of Statement of Cash FlowsOverall, how successful has management been in generating and investing cash flows?How does accrual basis net income compare with cash basis?Basic Interpretation of Statement of Cash FlowsWhat cash uses have been made for investing activities, and to what extent has cash from operations been sufficient to pay for these investments?What sources and uses have been generated from financing activities?Direct versus Indirect Method for Operating ActivitiesDirect shows major classes of gross cash receipts and cash paymentsDifference is net cash provided by, used in, operating activitiesIndirect starts with net income (loss) and adjusts for revenues and expenses that did not cause changes in cashFASB encourages use of the direct methodDirect MethodGoal to convert each income statement item from accrual to cash basisFirst, identify the balance sheet account(s) that relate to each income statement itemNext, combine the change in the balance sheet account with the income statement amountCash Receipts from CustomersCash receipts from customers relates sales to change in accounts receivableIf accounts receivable decreased during the period, we collected more cash than amount reported as sales revenueIf accounts receivable increased during the period, we collected less cash that amount reported as sales revenueCash Receipts from CustomersTake sales amount andAdd decrease in accounts receivableORSubtract increase in accounts receivableCash Payments to SuppliersCash Payments to Suppliers relates cost of goods sold to change in merchandise inventory and change in accounts payableFirst use cost of goods sold and change in inventory to calculate purchasesIf inventory increased during the period, we purchased more goods than we soldIf inventory decreased during the period, we purchased fewer goods than we soldCash Payments to SuppliersTo calculate purchases, take cost of goods sold amount andAdd increase in inventoryORSubtract decrease in inventoryThis gives us accrual purchasesCash Payments to SuppliersSecond use purchases and change in accounts payable to calculate cash payments to suppliersIf accounts payable increased during period, we paid less cash than purchasesIf accounts payable decreased during period, we paid more cash than purchasesCash Payments to SuppliersTo calculate cash payments to suppliers, take purchases amount andAdd decrease in accounts payableORSubtract increase in accounts payableOther Expenses That Affect CashCash payments for expenses relate the expense to a change in an accrued expense account or a prepaid expenseCash payments for wages relates wages expense and change in wages payableCash payments for office supplies relates office supplies expense and changes in office suppliesOther Expenses That Affect CashTo calculate cash payments for expenses, take the expense amount andAdd decrease in accrued expenseORSubtract increase in accrued expenseORAdd increase in prepaid expenseORSubtract decrease in prepaid expenseOther Revenues That Affect CashCash receipts for revenues relate the revenue to a change in an unearned revenue account or accrued revenueCash receipts from interest relates interest revenue and change in interest receivableCash receipts from subscriptions relates subscriptions revenue and changes in unearned subscriptionsOther Revenues That Affect CashTo calculate cash receipts from revenues, take the revenue amount andAdd decrease in accrued revenueORSubtract increase in accrued revenueORAdd increase in unearned revenueORSubtract decrease in unearned revenueIndirect Method for Operating ActivitiesStarts with net income(loss) from the income statement. Adjusts for revenues and expenses that did not cause a change in cashResults in same total as direct methodFASB encourages use of directBelieves that reconciliation of net income to cash provided by operations is useful informationIndirect Method Step 1Net incomeAddExpenses that did not use cash and losses on sale of noncurrent assetsSubtractGains on sales of noncurrent assetsIndirect Method Step 2AddDecreases in operating current assetsIncreases in operating current liabilitiesSubtract Increases in operating current assetsDecreases in operating current liabilitiesCash Flows from Investing ActivitiesAnalyze changes in nonoperating current assets and noncurrent assetsIf equipment increased, there was a purchase of new equipmentIf equipment decreased, there was a disposal of old equipmentIf there was more than one change, analyze each separatelyIdentify the cash flow from each transactionCash Flows from Financing ActivitiesAnalyze changes in nonoperating current liabilities, noncurrent liabilities, paid-in capital, and nonoperating changes to retained earnings(dividends)If bonds increased, there was an issuance of bondsIf paid-in capital increased, there was an issuance of stockCash Flows from Financing ActivitiesIf dividends were declared, combine amount declared with change in dividends payable to get cash dividendsIf there was more than one change, analyze each separatelyIdentify the cash flow from each transactionSteps in Preparing Statement of Cash FlowsCompute the net change in cash and cash equivalentsCompute the amount of net cash provided by (used in) operating activities by direct methodPrepare the reconciliation of net income to net cash provided by (used in) operating activities by indirect methodSteps in Preparing Statement of Cash FlowsCompute the amount of net cash provided by (used in) investing and financing activitiesPrepare the statement of cash flowsInterpretation of Information in Statement of Cash FlowsOverall, how successful has management been in generating and investing cash flows during the period?How does accrual net income compare with cash net income?Interpretation of Information in Statement of Cash FlowsWhat cash uses have been made for investing activities and to what extent has cash from operations been sufficient to pay for these investments?What sources and uses have been generated from financing activities?